TIDMTLI
RNS Number : 0854Y
Alternative Asset Opps PCC Ltd
24 February 2012
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Half-Yearly Announcement of Results
For the period from 1 July 2011 to 31 December 2011
At a meeting of the Board of Directors held on 22 February 2012,
the unaudited half yearly accounts for the Company for the period
from 1 July 2011 to 31 December 2011 were approved, details of
which are attached.
The financial information set out in this announcement does not
constitute the Company's statutory accounts for the period from 1
July 2011 to 31 December 2011, but is derived from those accounts.
Printed accounts for the period from 1 July 2011 to 31 December
2011 will be delivered to Shareholders during March 2012.
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS). Whilst the
financial information included in this announcement has been
computed in accordance with IFRS, this announcement does not itself
contain sufficient information to comply with IFRS. The Company
will publish condensed financial statements that comply with IFRS
in March 2012. This announcement has been prepared using accounting
policies consistent with those set out in the Company's half yearly
report and financial statements for the period from 1 July 2011 to
31 December 2011.
P W I Ingram
Company Secretary
Telephone number: 020 7065 1467
155 Bishopsgate
London EC2M 3AD
24 February 2012
INVESTOR INFORMATION
For the period from 1 July 2011 to 31 December 2011
General information
Alternative Asset Opportunities PCC Limited (the "Company") was
registered on 27 February 2004 in Guernsey, as a closed-ended
protected cell company in accordance with the provisions of The
Protected Cell Companies Ordinance, 1997 and The Companies
(Guernsey) Law, 2008. It was established with one Cell known as the
US Traded Life Interests Fund (the "Fund") which had a planned life
of approximately 8 years from the date of launch. The Company is
regulated by the Guernsey Financial Services Commission as an
authorised fund under the Protection of Investors (Bailiwick of
Guernsey) Law, 2008, as amended.
Following a Special Resolution passed at an Extraordinary
General Meeting on 28 August 2009, the Articles of Incorporation
were amended to move from having a fixed life in respect of the
Company's Cell, US Traded Life Interests Fund (terminating on 31
March 2012) to offering shareholders annual continuation votes from
the Company's 2012Annual General Meeting onward.
With effect from 1 September 2009, the Company has been managed
with a view to being approved as an Investment Trust within the
meaning of the Corporation Tax Act 2010, and has been resident in
the UK for tax purposes from that date.
The Company's redeemable participating preference shares (the
"Shares") were admitted to the Official List of the UK Listing
Authority and commenced trading on the London Stock Exchange on 25
March 2004.
The interim financial information for the period from 1 July
2011 to 31 December 2011 has not been audited or reviewed in
accordance with International Standard on Review Engagement 2410
issued by the Auditing Practices Board. The financial information
for the year ended 30 June 2011 is derived from the financial
statements delivered to the UK Listing Authority and do not
constitute statutory accounts within the meaning of section 243 of
The Companies (Guernsey) Law, 2008. The Auditors reported on these
accounts, their report was unqualified, although it included an
emphasis of matter paragraph in connection with the valuation of
traded life interests, but did not contain a statement under
Section 263 (2) of The Companies (Guernsey) Law, 2008.
Investment objective
The Company's objective in respect of the Fund is to provide
investors with an attractive capital return through investment
predominantly in a diversified portfolio of US Traded Life
Interests ("TLIs").
INVESTOR INFORMATION (CONTINUED)
For the period from 1 July 2011 to 31 December 2011
Directors Registrar
CPG Tracy (Chairman) Capita Registrars (Guernsey)
DIW Reynolds (Chairman of the Limited
Audit Committee) Mont Crevelt House
JPHS Scott Bulwer Avenue
SM Zein St Sampson
Guernsey GY2 4LH
Registered Office Investment Manager
Dorey Court, Admiral Park SL Investment Management Limited
St Peter Port 8/11 Grosvenor Court
Guernsey GY1 2HT Foregate Street
Chester CH1 1HG
Manager Banker (UK)
RCM (UK) Limited Allied Irish Banks PLC
155 Bishopsgate St Helen's
London EC2M 3AD 1 Undershaft
London EC3A 8AB
Secretary Banker (Guernsey)
RCM (UK) Limited Kleinwort Benson (Channel Islands)
155 Bishopsgate Limited
London EC2M 3AD Dorey Court, Admiral Park
Represented by PWI Ingram FCIS St Peter Port
Guernsey GY1 2HT
Administrator Custodian
Kleinwort Benson (Channel Islands) Kleinwort Benson (Guernsey) Limited
Fund Services Limited Dorey Court, Admiral Park
Dorey Court, Admiral Park St Peter Port
St Peter Port Guernsey GY1 2HT
Guernsey GY1 2HT
Legal Advisers (UK) Sub Custodian
Herbert Smith LLP Wells Fargo Bank Northwest N.A.
Exchange House 299 South Main Street
Primrose Street 12th Floor
London EC2A 2HS Salt Lake City
UT 84111-2263
Financial Adviser and Corporate Legal Advisers (Guernsey)
Broker Carey Olsen
RBS Hoare Govett Limited Carey House
250 Bishopsgate Les Banques
London EC2M 4AA St Peter Port
Guernsey GY1 4BZ
Recognised Auditor
Deloitte LLP
Regency Court
Glategny Esplanade
St Peter Port
Guernsey GY1 3HW
INVESTOR INFORMATION (CONTINUED)
For the period from 1 July 2011 to 31 December 2011
Directors
The Directors have been chosen for their investment and
commercial experience and are listed below:
Charles Tracy, Chairman, (aged 66) has over 30 years' experience
as a merchant banker, covering both the investment management and
banking fields. On joining N.M. Rothschild & Sons in 1975 he
was made responsible for Asian and commodity-related investments,
working in Malaysia and Hong Kong before taking up the post of
Managing Director of N.M. Rothschild & Sons (C.I.) Ltd. in
1981, and remaining in that position until 1998. During that period
he was Chairman of the Association of Guernsey Banks and of the
Guernsey International Business Association. He is currently
non-executive Chairman of Louvre Fund Management Limited, President
of the Guernsey Tax Tribunal and Chairman of the Board of the
Guernsey Banking Deposit Compensation Scheme. He is a resident of
Guernsey.
Ian Reynolds (aged 68) is a former Chief Executive of Commercial
Union Life Assurance Company. He is a director of Liverpool
Victoria Friendly Society and of The Equitable Life Assurance
Society, and a former consultant actuary at Towers Perrin. Mr
Reynolds is a Fellow of the Institute of Actuaries and a Chartered
Director. He is UK resident.
John Scott (aged 59) is currently a director of several UK
investment trusts and is Chairman of Scottish Mortgage Investment
Trust PLC and of Dunedin Income Growth Investment Trust PLC. Mr
Scott held a number of senior appointments at Lazard Brothers &
Co., Limited between 1981 and 2001. Prior to that, he worked at
Jardine Matheson & Co., Limited. He is a Fellow of the
Chartered Insurance Institute and of the Chartered Institute for
Securities and Investment. He is UK resident.
Saad Zein (44) is currently Managing Director, Head of
Institutional and Corporate Solutions, Americas, of Standard Bank
in New York. Mr Zein was formerly a Senior Managing Director of
Aladdin Capital Management UK LLP. Prior to this, his career was
spent as an investment banker with particular focus on credit
markets and structured products, including US traded life
interests. He was employed by Dresdner Kleinwort Wasserstein
between 1999 and 2009, where he held a number of senior positions. He is US resident.
The Investment Manager
The Investment Manager, SL Investment Management Limited, which
is authorised and regulated in the United Kingdom by the Financial
Services Authority, was formed in 1990 and is an investment adviser
for a range of specialist investment products.
The Manager
RCM (UK) Limited, which is authorised and regulated in the
United Kingdom by the Financial Services Authority, is manager of a
number of closed-ended investment companies with approximately
GBP981 million of such assets under management in a range of
investment companies and investment trusts as at 31 December
2011.
The Manager is responsible for managing the cash and fixed
interest holdings of the Fund, and foreign currency hedging.
RESPONSIBILITY STATEMENT
For the period from 1 July 2011 to 31 December 2011
We confirm to the best of our knowledge:
a. the half yearly report and unaudited condensed financial
statements have been prepared in accordance with IAS 34;
b. the interim management report (contained in the Chairman's
Statement, Investment Manager's Report and Manager's Report)
includes a fair review of the information required by Disclosure
and Transparency Rule 4.2.7R (indication of important events during
the first six months, and their impact on the financial statements,
and a description of principal risks and uncertainties for the
remaining six months of the year); and
c. the interim management report includes a fair review of the
information required by Disclosure and Transparency Rule 4.2.8R
(disclosure of related party transactions and changes therein).
By order of the Board
DIW Reynolds JPHS Scott
Director Director
22 February 2012
FINANCIAL HIGHLIGHTS
For the period 1 July 2011 to 31 December
2011
------------------------------------------------------- -------------- --------------
01.07.11 01.07.10 01.07.10
to 31.12.11 to 31.12.10 to 30.06.11
(6 months) (6 months) (12 months)
Shares in issue 40,000,000 40,000,000 40,000,000
Net Assets at GBP30,230,491 GBP32,593,476 GBP30,870,466
period end
Net asset value per Share at
period end (see note below) 75.6p 81.5p 77.2p
Total deficit on ordinary activities
for the (1.60p) (1.14p) (5.45p)
financial period
per Share
Revenue deficit per Share (1.28p) (1.39p) (2.77p)
The half-yearly financial report has neither been audited nor
reviewed by the Company's auditors. The financial information for
the period ended 30 June 2011 has been extracted from the audited
financial statements for that period.
Dividends
The Directors do not propose a dividend for the period from 1
July 2011 to 31 December 2011.
CHAIRMAN'S STATEMENT
For the period from 1 July 2011 to 31 December 2011
Introduction
This statement covers the six months from 1 July 2011. It has
been a period of little progress as regards maturities, but much
work has been done on other aspects which the Board feels has
significantly improved the Company's longer term outlook.
Portfolio developments
A summary of portfolio maturities since inception is given in
the following table:
Period 40 12 14 10 12 6
months months months months months months
------------- ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Dates Inception 1/7/07 1/7/08 1/9/09 1/07/10 1/07/11
- 30/6/07 - 30/6/08 - 31/8/09 - 30/06/10 - 30/06/11 - 31/12/11
------------- ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Number of
policies
matured 7 6 7 4 6 2
------------- ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Value of
policies
matured ($
million) $9.3m $3.9m $14.8m $10.7m $12.9m $1.9m
------------- ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Premiums
paid
($ million) $18.8m $9.0m $10.5m $7.3m $8.4m $4.2m
------------- ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
During the six month period to 31 December 2011, two policy
maturities were identified, with a total face value of US$1.9
million. This compares with 6 policies with a face value of US$12.9
million in the 12 month period to 30 June 2011, and 24 policies
with a total face value of US$38.7 million, in the period from the
Company's launch to 30 June 2010. In contrast to the last full year
maturity proceeds exceeded premium outflow, the opposite has been
the case in this period. The Board's actions with regards to
funding are discussed below.
The gains on maturing policies amounted to approximately US$1.1
million in the period, or 1.7p per share. The Net Asset Value per
Share as at 31 December 2011 was 75.4p, compared to 77.2p as at 30
June 2011.
As at 31 December 2011 there were a total of 127 policies in the
portfolio, with a face value of US$202.8 million and a valuation of
US$81.9 million. There have been no policy acquisitions since
completion of the original policy purchase programme, but premiums
continued to be payable on existing holdings, totalling US$ 4.2
million during the half year.
The Company's forward currency contracts are due to mature on 30
March 2012. These contracts were set up to hedge the net US$ value
of the portfolio against sterling. During the period it was agreed
by shareholders that the Company would no longer hedge its
portfolio and these contracts were subsequently closed out at a
loss, resulting in a net funding requirement as of 30 March 2012 of
US$11.8 million (There are corresponding, but unrealised, gains in
the sterling value of the US$-based portfolio). Given that the
immediate effect of this will be an increase in borrowings to a
level which your board feels would be too high, we initiated a
programme of policy sales, which is reported on below, with the
intention of realising around US$10 million to contain the overall
level of indebtedness.
The following paragraphs cover the sales programme and other
principal issues facing the Company, that is to say valuation,
credit risk, gearing and foreign exchange.
Sales Programme
As at the date of this report, the sale of 12 policies has been
agreed, for a total sum of US$10.7 million and proceeds of US$5.9
million had been received, with the balance due in the next few
weeks. This sales programme has several important implications.
CHAIRMAN'S STATEMENT (continued)
For the period from 1 July 2011 to 31 December 2011
The Board acknowledges that policy sales potentially reduce
returns to investors, since the return on cash in hand is less than
the predicted return implicit in the policies' current value; sales
also reduce the portfolio spread. The benefits of sales are,
however, considerable. In the first place, they greatly improve
cash flow, reduce borrowings and considerably assist our
negotiations on the Company's borrowing facility. They reduce the
size of the facility required, improve the ratio of portfolio value
to borrowings, and demonstrate that there is liquidity in the
marketplace.
Sales also serve to support the Company's portfolio valuation. I
am pleased to report that expected sales proceeds will closely
match the Company's carrying valuation on each policy, with total
proceeds exceeding 95% of the latest valuation figures. Given
current conditions in the TLI market, this is a very satisfactory
outcome which has been achieved through a fully competitive bidding
process involving several potential counterparties.
A further side benefit of this process has been the obtaining of
up to date life expectancy (LE) assessments on the policies offered
for sale. As at the date of this report, a total of 72 new
assessments have been incorporated into the valuation, representing
73% of the face value of policies. I am pleased to report that the
average LE on the policies assessed in 2011 was slightly shorter
than our previous assessment. This both improves valuations, since
the new LEs will now be used for this purpose, and gives greater
overall confidence in the accuracy of LEs in the rest of the
portfolio.
Given the recent slow rate of maturities, this new information
is important in that it points strongly to slow maturities being
the result of random mortality variations in a fairly small
portfolio of lives rather than any underlying error in LE
assumptions.
Valuation
The valuation remains the best estimate of the Board and the
Investment Manager of the current value of the portfolio based on
expected future cash flows. The three major components of the
valuation are LE assessments, the tables of predicted mortalities
based on these life assessments and the discount rate (internal
rate of return, or IRR) used to arrive at a present value of the
resulting cash flow projections.
I have commented on the outcome of recent LE assessments. A
total of 65 policies within the portfolio have now been re-assessed
within the last 12 months, with the results incorporated into
recent valuations. Given the significant number of re-assessments,
the Board will keep under review its policy in relation to further
re-assessments. The table overleaf allows investors to consider the
effects of differing LE assumptions, although the number of recent
re-assessments and the generally positive outcome provide
significant confidence to the LEs currently used for valuation.
There has been no material change in the mortality tables since
my last report.
The valuation model currently uses an IRR of 12%, intended to
reflect market pricing in an admittedly thin market. Given that
interest rates are now low, and are likely to remain stable, this
implies a significant risk premium above current interest rates.
There is some evidence that distressed sellers are no longer the
main factor in the market, and that there is, as recent sales have
demonstrated, some new money being invested in TLIs. Recent sales
have also given some support to the use of a 12% IRR, but it must
be cautioned that information on market trades is closely guarded
and the volume of trades carried out by the Investment Manager is
insufficient to give a representative sample of trades on a
non-distressed basis. The Board thus continues to believe that the
12% IRR assumption remains appropriate, but, as before, is
providing information on the effect of differing IRRs in the table
below.
CHAIRMAN'S STATEMENT (continued)
For the period from 1 July 2011 to 31 December 2011
Valuation (continued)
The table is expressed in terms of NAV per share (based on IRR
to an assumed maturity date):
- The first line of NAVs in the new table uses the 'Latest LE'
assumption, that is to say either an LE based on a recently updated
assessment or, for the remaining 27% of the portfolio by face value
the 'non-updated policies'), based on the original LE assessed at
the time of purchase. The average LE (weighted by policy value) is
given for reference (4.7 years). NAV is then shown at four
different discount rates, ranging from 10% to 20%. This shows the
effect of IRR on current value, but it also allows investors to
assess the effects of forced sales if, for example, the portfolio
was to be liquidated before 31 December 2016.
- The second line uses the assumption that updated LEs obtained
for the non-updated policies would result in an LE increase of 20%
on the non-updated policies. In practice, the LE changes exhibited
by recent assessments on average show a decrease in LE, but
outcomes vary widely and the Board does not feel it is necessarily
correct to extrapolate the recent changes for the non-updated
policies. The overall effect of this assumption is to increase
average LE by 0.2 years.
- The third line assumes an increase in LE of 40% on the
non-updated policies. The effect on NAV is roughly proportionate to
that shown in the second line, but the increase in LE is only 0.1
years because of the fact that policies are weighted by value -
such an extension to LE of course has significant impact on the
values of some of these policies.
- Finally, the fourth line shows the outcome of assuming LEs are
simply based on the current table of life expectancies for the
general population, the 2008 Valuation Basic Table (Ultimate), i.e.
ignoring LE assessments. The Board does not suggest that this is a
realistic assumption, but it gives a measure of the degree to which
the portfolio is dependent on assessed LEs being shorter than for
the population as a whole.
Sensitivity Matrix
Net Asset Value in pence per share on various assumptions as at
31 December 2011
Discount Rates applied to cash
flows
----------------------- --------- -------------------------------------
Weighted
Average Current
Mortality Assumptions LE* 10% (12%) 16% 20%
----------------------- --------- ------- -----------
Latest LE 4.67 82.4 74.6 62.0 51.9
----------------------- --------- ------- ----------- ------- ------
+20% for LE dates
before 01/11/2008 4.85 75.0 67.4 55.2 45.4
----------------------- --------- ------- ----------- ------- ------
+40% for LE dates
before 01/11/2008 4.94 68.5 61.2 49.4 40.1
----------------------- --------- ------- ----------- ------- ------
No underwriting 5.58 62.3 54.5 42.2 32.5
----------------------- --------- ------- ----------- ------- ------
*The weighted average LE (in years) is calculated by reference
to the policy values obtained.
Note that all scenarios exclude the 12 policies the Board has
agreed to be sold. For the purposes of the scenarios, the value of
the policies is included as cash at the agreed sale price of
$10.7m.
CHAIRMAN'S STATEMENT (continued)
For the period from 1 July 2011 to 31 December 2011
Gearing
During the six month period to 31 December 2011 the Company's
total borrowings rose from US$21,093,000 to US$25,193,000. The
Company's borrowing agreement with Allied Irish Banks plc ("AIB")
has been extended until 30 March 2012, and is currently under
review. AIB's renewal process has become a longer and more complex
procedure, and discussions with AIB commenced at the end of 2011.
Renewal will need to take account of the change in borrowings
required as a result of the maturity of the forward currency
contracts on 30 March 2012, net of the proceeds of sales, as
discussed above. The Board will keep shareholders informed of the
outcome, but a low level of maturities may require some further
policy sales to keep borrowings within agreed limits.
Hedging
As stated above, the Company has changed its investment policy
and no longer hedges its US dollar exposure. Accordingly, a net
US$54.2 million was bought forward for 30 March 2012 during the
period, compared with an initial short position of US$66 million.
This leaves a balance of US$11.8 million for settlement on that
date, which will cover the realised loss on all the Company's
outstanding forward currency positions.
At 31 December 2011, the Company's net US dollar exposure
amounted to US$46.8 million, being the carrying value of policies,
US$81.9 million, plus cash of US$1.9 million, less the loan
outstanding of US$25.2 million and less the above US$11.8
million.
Related Party Transactions
There have been no changes to the related party arrangements or
transactions as reported in the statutory Annual Financial Report
for the year ended 30 June 2011.
Statement of Principal Risks and Uncertainties
The Company's assets consist mainly of US Traded Life Interests
and its principal risks are market and longevity risk, currency
risk, interest rate risk and credit risk. These risks, and the way
they are managed, are described in more detail within the
Directors' Report in the Company's Annual Financial Report for the
year ended 30 June 2011. The Company's principal risks and
uncertainties have not changed since the date of that report. The
credit rating of the underlying insurance companies issuing the TLI
policies in the portfolio remains good with 99.5% rated A or better
by AM Best.
FSA Consultation on TLIs
On 28 November 2011 the FSA issued a Guidance Consultation on
Traded Life Policy Investments (which this Company refers to as
TLIs) recommending that TLIs should not reach retail investors in
the UK. While the Company does not actively market itself to retail
investors, it responded to the FSA on 23 January 2012 since in the
Board's view some of the FSA's comments were inaccurate. As at the
date of this report, no formal guidance on TLIs has been issued by
the FSA and recent policy sales, which took place immediately after
the Consultation paper was issued, have not been affected.
Outlook
The past six months has been a period of considerable activity,
as the Board has on the one hand taken steps to analyse why the
level of maturities has been at an abnormally low level, and on the
other hand it has been looking at all options for safeguarding the
solvency of the Company in the event that maturities do not in the
short term return to somewhere near the levels predicted by the
actuarial assessment. Meanwhile the emergence of a more liquid
market is both useful and encouraging. The Board does not rule out
further policy sales, but it remains of the view that, other things
being equal, the best approach for the conservation of shareholder
value is to hold policies to maturity rather than seek early
liquidation.
CPG Tracy
Chairman
22 February 2012
INVESTMENT MANAGER'S REVIEW
For the period from 1 July 2011 to 31 December 2011
Market Review
The ongoing global financial turbulence continued to feed
nervousness, resulting in investors tending to favour
better-understood traditional investment classes. The supply of
bank credit also remained tight as Banks looked to strengthen their
capital positions. This has resulted in a difficult environment in
which to raise new investment capital into the life settlement
market.
A large proportion of transactions during 2011 were therefore
trades in the tertiary market, as existing holders of Life
Settlement policies looked to raise liquidity to fund future
premium commitments. The relatively low level of demand has enabled
buyers to be more selective with their purchasing criteria. There
remains almost no market for premium finance or beneficial interest
policies at present.
However, there are signs that conditions are improving, with a
number of new players emerging in the second half of the year. The
Company has taken advantage of this by agreeing some policy sales
at prices very close to the prevailing valuation level.
The credit ratings of US life companies remain stable, with only
one Life Company rating change affecting AAO during the period.
Reassure American Life Insurance Company was upgraded from A to A+
in December 2011, affecting one policy in the portfolio. 99.9% of
the portfolio is split across life companies currently possessing
an AM Best rating of A or higher. The investments in the AAO
portfolio were carefully selected in accordance with the Company's
Investment Objective and Policy, ensuring a high quality portfolio
composition.
Investment Portfolio Review
During the six-month period from 1 July 2011 to 31 December 2011
two policy maturities (one female life) were confirmed, releasing
$1.9m in death benefits. As at 31 December 2011, 127 policies were
in the Fund's portfolio secured on 107 individual lives.
From inception to 31 December 2011, there have been 32 policy
maturities across 27 lives. Proceeds from these maturities total
$53.8m, realising a $25.9m gain.
The expected cost of premiums for the remaining six months of
the year ending 30 June 2012 is $4.5m. In the following 12-month
accounting period ending 30 June 2013, scheduled premium
commitments are $9.6m, assuming no maturities during this time. SL
Investment Management continues the ongoing review of all policy
statements to identify any scope for further optimisation of the
premium payment schedules.
The Company continues to update Life Expectancies (LEs) for
policies in the portfolio. During the 6 month period, updated LEs
were received for lives affecting 54 policies in the portfolio. As
at 31 December 2011, policies equating to 72.9% of the total net
death benefit are valued using LEs dated after the LE re-basis in
2008. The LE update programme will continue during 2012.
Portfolio Summary
Death Benefits US$203m
---------------------------------- ---------
Investments at Carrying Value US$82m
---------------------------------- ---------
Male/Female Ratio 63%/37%
---------------------------------- ---------
Number of Holding Life Companies 30
---------------------------------- ---------
INVESTMENT MANAGER'S REVIEW
For the period from 1 July 2011 to 31 December 2011
Averages weighted by Death Benefits
Age at purchase 82.2 years
----------------------------------- -----------
Age at valuation (31/12/11) 88.5 years
----------------------------------- -----------
Pricing Life Expectancy at
purchase 7.7 years
----------------------------------- -----------
Current Life Expectancy (31/12/11) 4.9 years
----------------------------------- -----------
Life Group (Parent Company) Distribution (Top 5)
Ranking Parent Company % Total Death Benefits % Investment Value
by total
death benefit
--------------- ------------------------ ----------------------- -------------------
1 Lincoln Financial Group 18.3% 17.8%
--------------- ------------------------ ----------------------- -------------------
2 AIG Life Group 17.8% 17.8%
--------------- ------------------------ ----------------------- -------------------
3 AEGON USA Group 13.4% 14.0%
--------------- ------------------------ ----------------------- -------------------
MassMutual Financial
4 Group 9.5% 10.0%
--------------- ------------------------ ----------------------- -------------------
Manulife Financial
5 Group 8.3% 7.9%
--------------- ------------------------ ----------------------- -------------------
Credit Quality Distribution by Holding Life Company
AM Best Rating % Total Death Benefits % Investment Value
---------------- ----------------------- -------------------
A++ 13.2% 13.9%
---------------- ----------------------- -------------------
A+ 57.7% 54.0%
---------------- ----------------------- -------------------
A 28.5% 31.6%
---------------- ----------------------- -------------------
A- 0.5% 0.4%
---------------- ----------------------- -------------------
B++ 0.0% 0.0%
---------------- ----------------------- -------------------
B+ 0.1% 0.1%
---------------- ----------------------- -------------------
Minimum rating in portfolio: B+
Outlook
For the early months of 2012, the life settlement market is
likely to mirror the activity level witnessed in late 2011. Active
buyers tend to target policies available from the tertiary market
ahead of sourcing policies on the secondary market. The attraction
of buying policies in bulk and the often shorter closing process
for tertiary deals are an added incentive. However, there is only a
limited supply of quality tertiary policies and if demand
increases, the competition for policies should drive prices up and
also force investors to widen their buying parameters. Activity is
therefore expected to increase as we move through the year.
SL Investment Management is aware of a number of life
settlement-dedicated Funds that have recently launched or are
expecting to launch soon. These types of investors will have a
mandate to deploy their capital in a more consistent manner than
the opportunistic private equity and hedge funds prevalent in early
2011. It is likely that during 2012, these Funds will replace the
opportunistic buyers.
Holding a well diversified seasoned portfolio with an average
life insured age of 88.5 years, the Company holds assets most
likely to appeal to new buyers in the market. AAO is therefore well
placed to benefit from an upturn in activity in 2012.
SL Investment Management Limited
22 February 2012
MANAGER'S REVIEW
For the period from 1 July 2011 to 31 December 2011
Borrowings and investments
In September 2011, the Company renewed its loan agreement with
Allied Irish Banks, covering the period to 30 March 2012. This
agreement consists of an amortising loan of US$23.1 million and a
revolving credit facility (RCF) initially of US$5.9 million. By 31
December 2011, the amortising loan still stood at US$23.1 million,
while the balance on the RCF was US$2.1 million.
Since the period-end, the Company has repaid US$6.3 million from
the sale of policies. As a result, the total loan balance now
stands at US$18.9 million, and, once the final US$1.9 million
available under the RCF is drawn down, the Company will hold enough
cash to fund its premium payments and expenses until 30 March
2012.
Under the agreement, the primary covenant obliges the Company to
maintain cover (i.e. asset value, subject to certain adjustments,
divided by borrowing) above 2.5 times. As at 31 December 2011 cover
was 2.8 times.
The Company is negotiating a renewal of the loan agreement with
Allied Irish Banks to cover its financing needs beyond 30 March
2012.
The Company has retained its GBP100,000 holding of UK Treasury
4% 2016.
Currency hedging
At an Extraordinary General Meeting in September 2011, it was
resolved no longer to hedge the Company's US dollar exposure.
Accordingly, the Company closed out its forward currency contracts,
crystallising a loss of GBP7.4 million for settlement on 30 March
2012.
Since this loss will be funded by US dollar borrowing, the
Company has now covered this by means of a forward purchase of
GBP7.5 million from US dollars, also for 30 March 2012. As a
result, the Company is due to deliver US$11.8 million to Allied
Irish Banks on that date, and the loan negotiation, referred to
above, recognises this funding requirement.
RCM (UK) Limited
22 February 2012
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
For the period from 1 July 2011 to 31 December 2011
Notes 01.07.11 to 31.12.11 01.07.10 to 31.12.10 01.07.10 to 30.06.11
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP GBP GBP GBP GBP GBP GBP GBP GBP
Operating income
Net
gains/(losses)
on investments 9 - 1,354,486 1,354,486 - (2,264,736) (2,264,736) - (4,999,872) (4,999,872)
Other foreign
exchange
(losses)/gains 13 - (1,480,540) (1,480,540) - 2,363,616 2,363,616 - 3,928,695 3,928,695
Interest and
similar
income 3 2,088 - 2,088 2,143 - 2,143 4,300 - 4,300
---------- ------------ ------------ ---------- ------------ ------------ ------------ ------------ ------------
2,088 (126,054) (123,966) 2,143 98,880 101,023 4,300 (1,071,177) (1,066,877)
Operating
expenses
Management fee 4 (64,743) - (64,743) (71,307) - (71,307) (136,400) - (136,400)
Investment
manager's
fee 4 (61,520) - (61,520) (80,504) - (80,504) (155,097) - (155,097)
Custodian fee (7,573) - (7,573) (9,384) - (9,384) (22,178) - (22,178)
Other expenses 5 (212,023) - (212,023) (186,283) - (186,283) (405,284) - (405,284)
Total operating
expenses before
finance costs (345,859) - (345,859) (347,478) - (347,478) (718,959) - (718,959)
Operating
(loss)/profit
before finance
costs (343,771) (126,054) (469,825) (345,335) 98,880 (246,455) 714,659) (1,071,177) (1,785,836)
Finance costs
Loan interest
payable 12 (170,150) - (170,150) (209,439) - (209,439) (393,068) - (393,068)
Net
(deficit)/return (513,921) (126,054) (639,975) (554,774) 98,880 (455,894) (1,107,727) (1,071,177) (2,178,904)
========== ============ ============ ========== ============ ============ ============ ============ ============
(Deficit)/Return
per share 7 (1.28p) (0.32p) (1.60p) (1.39p) 0.25p (1.14p) (2.77p) (2.68p) (5.45p)
The revenue column of this statement is the revenue account of
the Company. All revenue and capital items in the above statement
derive from continuing operations.
The notes on pages 19 to 27 are an integral part of these
condensed financial statements.
CONDENSED STATEMENT OF FINANCIAL POSITION
As at 31 December 2011
Notes 31.12.11 31.12.10 30.06.11
GBP GBP GBP
Non-current assets
Financial assets at fair value
through profit or loss 9 52,821,633 52,501,609 50,027,517
Current assets
Cash and cash equivalents 1,272,139 2,432,538 692,721
Other receivables 10 9,547 2,891,130 21,844
1,281,686 5,323,668 714,565
------------ ------------ ------------
Total assets 54,103,319 57,825,277 50,742,082
============ ============ ============
Current liabilities
Bank loan 12 16,208,366 17,324,918 13,139,390
Other payables 11 159,591 164,310 228,630
Fair value of forward currency
contracts 9 7,504,871 - 6,503,596
23,872,828 17,489,228 19,871,616
------------ ------------ ------------
Non-current liabilities
Fair value of forward currency
contracts 9 - 7,742,573 -
Total liabilities 23,872,828 25,231,801 19,871,616
------------ ------------ ------------
Net assets attributable to
shareholders 13 30,230,491 32,593,476 30,870,466
Total equity and liabilities
(including amounts due to
shareholders) 54,103,319 57,825,277 50,742,082
============ ============ ============
Net asset value per share 8 75.6p 81.5p 77.2p
These condensed financial statements were approved by the Board
of Directors on 22 February 2012.
Signed on behalf of the Board.
DIW Reynolds JPHS Scott
Director Director
22 February 2012
The notes on pages 19 to 27 are an integral part of these
condensed financial statements.
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' FUNDS
For the period from 1 July 2011 to 31 December 2011
Share Capital Revenue
Premium Reserve Reserve Total
GBP GBP GBP GBP
At 1 July 2010 39,168,236 (713,361) (5,405,505) 33,049,370
Deficit for the period - 98,880 (554,774) (455,894)
At 31 December 2010 39,168,236 (614,481) (5,960,279) 32,593,476
----------- ------------ ------------ ------------
Deficit for the period - (1,170,057) (552,953) (1,723,010)
At 30 June 2011 39,168,236 (1,784,538) (6,513,232) 30,870,466
----------- ------------ ------------ ------------
Deficit for the period - (126,054) (513,921) (639,975)
At 31 December 2011 39,168,236 (1,910,592) (7,027,153) 30,230,491
----------- ------------ ------------ ------------
The notes on pages 19 to 27 are an integral part of these
condensed financial statements.
CONDENSED STATEMENT OF CASH FLOWS
For the period from 1 July 2011 to 31 December 2011
01.07.11 01.07.10 01.07.10
to 31.12.11 to 31.12.10 to 30.06.11
GBP GBP GBP
Cash flows from operating activities
Revenue account operating loss before
finance costs for the period (343,771) (345,335) (714,659)
(Increase) /Decrease in other receivables 12,297 (2,872,668) (3,382)
Decrease in other payables (69,039) (85) 64,235
Premiums paid (2,659,842) (2,959,535) (5,213,997)
Proceeds from maturity of investments 1,220,212 6,320,648 8,314,046
Net cash (outflow)/inflow from operating
activities (1,840,143) 143,025 2,446,263
------------ ------------ ------------
Financing activities
Increase/(Decrease) in bank loan 3,068,976 1,234,144 (2,951,384)
Interest paid (170,150) (209,439) (393,068)
Net cash inflow/(outflow) from financing
activities 2,898,826 1,024,705 (3,344,452)
------------ ------------ ------------
Reconciliation of cash flow to movement
in net cash
Increase/(Decrease) in cash and cash
equivalents in the period 1,058,683 1,167,730 (898,189)
Cash and cash equivalents at the beginning
of the period 692,721 669,700 669,700
Effects of foreign exchange (479,265) 595,108 921,210
Cash and cash equivalents at the end
of the period 1,272,139 2,432,538 692,721
------------ ------------ ------------
The notes on pages 19 to 27 are an integral part of these
condensed financial statements.
PORTFOLIO OF INVESTMENTS
As at 31 December 2011
Portion
Number of AM Best
Traded Life Interests ("TLI's") of Policies Valuation Portfolio Rating
GBP %
Issuer
American General Life Insurance
Company 13 9,358,119 17.7 A
Lincoln National Life Insurance
Company 16 8,416,048 15.9 A+
Transamerica Occidental Life
Insurance Company 21 7,375,381 14.0 A+
Massachusetts Mutual Life Insurance
Company 9 5,276,222 10.0 A++
John Hancock Life Insurance
Company 11 4,178,681 7.9 A+
Aviva Life and Annuity Company 5 2,385,241 4.5 A
MetLife Insurance Company of
Connecticut 8 2,330,476 4.4 A+
New York Life Insurance and
Annuity Corp 6 2,035,727 3.9 A++
Security Life of Denver Insurance
Company 1 1,806,358 3.4 A
National Western Life Insurance
Company 1 1,328,042 2.5 A
Pacific Life Insurance Company 4 995,188 1.9 A+
Lincoln Life & Annuity Company
of NY 2 968,888 1.8 A+
AXA Equitable Life Insurance
Company 4 931,592 1.8 A+
Genworth Life Insurance Company 1 853,955 1.6 A
MONY Life Insurance Company
of America 2 805,223 1.5 A+
Columbus Life Insurance Company 2 563,801 1.1 A+
Lincoln Benefit Life Company 1 439,068 0.8 A+
North American Company for
L & H Insurance 2 425,682 0.8 A+
Sun Life Assurance Company
of CA 2 346,095 0.7 A+
Aviva Life and Annuity Company
of NY 2 342,592 0.7 A
United of Omaha Life Insurance
Company 2 302,459 0.6 A+
Banner Life Insurance Company 2 247,229 0.5 A+
ING Life Insurance and Annuity
Company 2 219,668 0.4 A
ReliaStar Life Insurance Company 2 219,244 0.4 A
Security Mutual Life Insurance
Company of NY 1 160,014 0.3 A-
Standard Insurance Company 1 148,608 0.3 A
Reassure America Life Insurance
Company 1 76,192 0.1 A+
General American Life Insurance
Company 1 69,735 0.1 A+
Phoenix Life Insurance Company 1 61,118 0.1 B+
Beneficial Life Insurance Company 1 40,697 0.1 A-
52,707,343 99.8
----------- --------------
Portion
of Portfolio
Nominal Valuation
GBP %
UK Treasury 4% 7 September
2016 100,000 114,290 0.2
114,290 0.2
----------- --------------
Portfolio Total 52,821,633 100.00%
=========== ==============
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
For the period from 1 July 2011 to 31 December 2011
1 Principal activity
The Company is a Guernsey registered closed-ended protected cell
company established with one Cell known as the US Traded Life
Interests Fund (the "Fund" or "Cell"). The redeemable participating
preference shares (the "Shares") in the Company are listed on the
London Stock Exchange. The Company's objective in respect of the
Fund is to provide investors with an attractive capital return
through investment predominantly in a diversified portfolio of US
Traded Life Interests ("TLIs").
2 Principal Accounting Policies
(a) Basis of preparation
Statement of compliance
The condensed financial information for the six months ended 31
December 2011 has been prepared in accordance with IAS 34 'Interim
Financial Reporting'. The condensed interim financial information
should be read in conjunction with the annual financial statements
for the year ended 30 June 2011, which have been prepared in
accordance with International Financial Reporting Standards.
The accounting policies applied in the condensed financial
statements are consistent with those of the annual financial
statements for the year ended 30 June 2011, as described in those
financial statements.
Basis of measurement
The financial statements have been prepared under the historical
cost convention as modified by the revaluation of investments and
derivatives, as detailed above
The financial statements have been prepared on a total company
basis and not on a cell- by-cell basis as there is currently only
one cell. The only non-cellular assets and liabilities are in
respect of the two management shares of no par value issued at GBP1
each fully paid represented by cash at bank. As they are immaterial
they have been excluded from the financial statements.
Functional and Presentational Currency
The financial information shown in the financial statements is
shown in sterling, being the Company's functional and
presentational currency. The exchange rate used for these financial
statements was 1.5543 (2010:1.5612).
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and the reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making
judgements about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in
the period of the revision and future periods if the revision
affects both current and future periods. Where such judgements are
made they are discussed below.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)
For the period from 1 July 2011 to 31 December 2011
2 Principal Accounting Policies
(b) Valuation of investments
US Traded Life Interest Investments
The Company primarily invests in US Traded Life Interests
("TLIs") which it intends to hold to maturity or until the end of
the life of the Fund, unless sales are required to meet cash flow
demands. The Company has only invested in Whole of Life and
Universal Life policies. All TLI investments are classified as fair
value through profit and loss
Recognition and basis of measurement
Purchases of investments are recognised on a trade date basis
and are initially measured at cost, being the consideration
given.
Valuation
As the market for TLIs is thin, and there is little published
information on these investments, there are no reliable market
prices. The TLIs are valued monthly at the Directors' discretion.
The methodology adopted by the Directors intends to reflect the
fair value of the policies. This methodology uses a discounted cash
flow method.
The value of a TLI policy is the present value of its net
expected future cash flows. The calculation uses the following data
and assumptions provided by the Investment Manager:
-- Death benefit payable under the policy;
-- Premiums due under the policy;
-- Mortality using the 2008 Valuation Basic Table (Ultimate) as
adjusted using a 24-month 'select period' adjustment and the most
recent life expectancy for each policy; and
-- An estimate of a market based discount rate derived by the Investment Manager.
There is inherent uncertainty within this basis of valuation
that this valuation will differ from the realisable value of these
investments were the TLIs to be sold at the reporting date.
United Kingdom Gilts
The Company has also invested in a United Kingdom Gilt ("UK
Gilt") which it intends to hold to maturity or until the end of the
life of the Fund. The UK Gilt is classified as fair value through
profit and loss.
Recognition and basis of measurement
Purchases of UK Gilts are recognised on a trade date basis and
are initially held at cost, being the consideration given.
Valuation
The UK Gilt is valued monthly at the clean bid market price
available for the stock at each valuation date. Accrued interest is
included within sundry debtors.
De-recognition
The Company de-recognises a financial asset when the contractual
rights to cash flows from the financial asset expire. A financial
liability is de-recognised when the obligation specified in the
contract is discharged, cancelled or expired.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)
For the period from 1 July 2011 to 31 December 2011
2 Principal Accounting Policies (continued)
(c) Going concern
The condensed financial statements have been prepared on the
going concern basis. The Directors believe that this basis is
appropriate as the Company has net assets significantly in excess
of its liabilities. The bank loan (see note 12) was extended to 30
March 2012 on 28 September 2011. The Directors have submitted a
request to AIB to extend the agreement for a further twelve
months.
The Board considered carefully the issue of 'going concern',
specifically in relation to the availability of funding. Total
borrowings under the agreement with AIB increased to circa US$25.2
million as at 31 December 2011 from circa US$21.1 million as at 30
June 2011. At this level the margin of cover required under the
agreement was comfortably met.
As described in note 9 (c), the unrealised loss on the Company's
forward currency contracts, which stood at GBP7.5m as at 31
December 2011, will need to be funded on 30 March 2012 as the
contracts mature on this date. As detailed in note 15, at the date
of this report, the sale of 12 policies had been agreed for a total
sum of US$10.7 million.
The Board has considered the position should AIB not renew the
agreement. Acknowledging that this might involve the sale of
further policies in an illiquid market, the Board is nevertheless
confident that the sales required to cover outstanding borrowings
could be completed. To the extent that the prices achieved did not
match those in the valuation, the net asset value of the Company
would be affected, but the Company would remain a going
concern.
A continuation vote will be put to the Shareholders at the next
Annual General Meeting in late 2012. While the Directors cannot be
certain what the results of this vote will be, the financial
statements are prepared on a going concern basis supported by the
Directors' current assessment of the Company's ability to continue
in existence for the foreseeable future and ongoing shareholder
interest in the continuation of the Company. Based on the above,
the Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for the
foreseeable future, and they continue to adopt the going concern
basis.
3 Interest and similar income
01.07.11 01.07.10 01.07.10
to 31.12.11 to 31.12.10 to 30.06.11
GBP GBP GBP
Bank deposit
interest 74 122 300
Bond interest 2,014 2,021 4,000
Total income 2,088 2,143 4,300
============ ============ ============
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)
For the period from 1 July 2011 to 31 December 2011
4 Investment management and management fees
SL Investment Management Limited, the Investment Manager, was
appointed under an agreement with the Company and other parties
dated 16 March 2004, as amended and restated on 20 July 2004. The
agreement may be terminated by either party giving not less than 12
months notice or shorter notice as the parties may agree to
accept.
Since 1 September 2009 the fee payable to the Investment Manager
has been 0.475% per annum of the Company's net assets attributable
to the Fund. With effect from 1 April 2012 the fee will be reduced
to 0.4% per annum of the Company's net assets attributable to the
Fund.
RCM (UK) Limited, the Manager, was appointed under an agreement
with the Company dated 16 March 2004 to manage the fixed interest
and near cash assets of the Company in accordance with the
investment policy and to implement the currency hedging facility
from time to time approved by the Directors. This agreement may be
terminated by either party giving not less than 12 months
notice.
With effect from 1 September 2009 the fee payable to the Manager
has been 0.425% per annum of the Company's net assets attributable
to the Fund. With effect from 1 April 2012 the fee will be reduced
to 0.4% per annum of the Company's net assets attributable to the
Fund. With effect from 1 September 2009 a separate Agreement was
signed between the Company and the Manager for the provision of
Administration and Secretarial Services at a fixed fee of GBP20,000
per annum.
With effect from 1 September 2009 the Administration Agreement
between the Company and Kleinwort Benson (Channel Islands) Fund
Services Limited (formerly Kleinwort Benson (Guernsey) Fund
Services Limited) dated 16 March 2004 was amended to a fixed fee of
GBP50,000 per annum.
5 Other expenses
01.07.11 01.07.10 01.07.10
to 31.12.11 to 31.12.10 to 30.06.11
GBP GBP GBP
Administration and accountancy
fees 25,208 22,767 52,151
Secretarial fees 10,081 10,082 28,164
Broker fees 21,000 31,653 48,050
Directors' fees and
expenses 39,396 38,486 75,945
D&O Insurance 4,194 5,236 10,794
Auditors' remuneration 17,334 17,430 32,716
Legal and professional
fees 9,088 - 10,200
Printing 1,273 1,383 1,869
Safe custody fees 9,026 14,023 23,170
Loan facility fees 27,904 7,477 42,783
Registrar fees 4,771 6,524 11,862
Sundry expenses * 42,748 31,222 67,580
212,023 186,283 405,284
============ ============ ============
* Sundry expenses include mailing services, tax exempt fees,
stock exchange fees, bank charges and other sundry costs.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)
For the period from 1 July 2011 to 31 December 2011
6 Taxation
========================================================================
The Company is exempt from Guernsey Income Tax under the Income
Tax (Exempt Bodies) (Guernsey) Ordinance 1989 and 1992 and is
charged an annual exemption fee of GBP600 included in sundry expenses.
========================================================================
The Company adopted UK tax residency from 1 September 2009 onwards.
Since that date the Company has been managed in such a way as
to meet the conditions for approval as an investment trust under
Section 1158 of the Corporation Tax Act 2010. Accordingly, no
UK tax has been provided for. The Company was approved by HM Revenue
& Customs as an investment trust in accordance with Section 1158
of the Corporation Tax Act 2010 for the period from 1 September
2009 to 30 June 2010. The Company will continue to seek approval
under Section 1158 of the Corporation Tax Act 2010 each year.
========================================================================
7 Return per share
========================================================================
Revenue deficit per Share is based on the net deficit attributable
to the Shares of GBP513,921 (December 2010: deficit GBP554,774,
June 2011: deficit GBP1,107,727) and on the average number of
Shares in issue of 40,000,000. Capital return per Share is based
on the net capital deficit attributable to the Shares of GBP126,054
(December 2010: return GBP98,880, June 2011: deficit GBP1,071,177)
and on the average number of Shares in issue of 40,000,000.
========================================================================
8 Net Asset Value per Share
========================================================================
The diluted and undiluted net asset value per Share is based on
net assets attributable to the Shares of GBP30,230,491 (December
2010: GBP32,593,476, June 2011: GBP30,870,466) and on the 40,000,000
Shares in issue at the period end.
========================================================================
9 Investments
========================================================================
(a) Investments at fair value
through profit or
loss
===================================== ============ ============== ==============
01.07.11 01.07.10 01.07.10
===================================== ============ ============== ==============
to 31.12.11 to 31.12.10 to 30.06.11
===================================== ============ ============== ==============
GBP GBP GBP
===================================== ============ ============== ==============
Opening valuation 50,027,517 58,127,458 58,127,458
===================================== ============ ============== ==============
Premiums paid 2,659,842 2,959,535 5,213,977
===================================== ============ ============== ==============
Proceeds from the maturities
of investments (1,220,212) (6,320,648) (8,314,046)
===================================== ============ ============== ==============
Realised gains on maturities 676,182 1,443,212 2,381,422
===================================== ============ ============== ==============
Unrealised movement in depreciation
on revaluation of investments 678,304 (3,707,948) (7,381,294)
===================================== ============ ============== ==============
Closing valuation 52,821,633 52,501,609 50,027,517
===================================== ============ ============== ==============
Comprising:-
===================================== ============ ============== ==============
Closing book cost 59,942,550 56,627,484 57,826,738
===================================== ============ ============== ==============
Closing unrealised depreciation (7,120,917) (4,125,875) (7,799,221)
===================================== ============ ============== ==============
Closing valuation 52,821,633 52,501,609 50,027,517
===================================== ============ ============== ==============
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)
For the period from 1 July 2011 to 31 December 2011
9 Investments
(b) Net gain/(loss) on investments 01.07.11 01.07.10 01.07.10
held at fair value through
profit or loss
to 31.12.11 to 31.12.10 to 30.06.11
GBP GBP GBP
Realised gain on maturities 676,182 1,443,212 2,381,422
Unrealised movement in depreciation
on revaluation of investments 678,304 (3,707,948) (7,381,294)
1,354,486 (2,264,736) (4,999,872)
------------ ------------- -------------
(c) Derivative financial
instruments
Forward currency
contracts
As at 31 December
2011
Average Contract Contract
Outstanding contracts exchange amount amount Fair value
rate USD GBP GBP
Buy GBP 1.7865 90,329,000 50,563,246 (7,597,407)
Sell GBP 1.5559 (78,500,000) (50,451,538) 92,536
11,829,000 111,708 (7,504,871)
------------- ------------- ------------
As at 31 December
2010
Average Contract Contract
Outstanding contracts exchange amount amount Fair value
rate USD GBP GBP
Buy GBP 1.8229 78,500,000 43,063,246 (7,453,746)
Sell GBP 1.4644 (7,500,000) (5,121,551) (288,827)
71,000,000 37,941,695 (7,742,573)
------------- ------------- ------------
As at 30 June 2011
Average Contract Contract
Outstanding contracts exchange amount amount Fair value
rate USD GBP GBP
Buy GBP 1.8229 78,500,000 43,063,246 (5,964,638)
Sell GBP 1.4967 (12,500,000) (8,351,526) (538,958)
66,000,000 34,711,720 (6,503,596)
------------- ------------- ------------
Since its formation the Company has entered into a number of
forward sales and purchases of US dollars in sterling. At the
period end there were thirteen outstanding forward currency
contracts for the sale of US$90.329 million against sterling
maturing 30 March 2012 and five contracts for the purchase of
US$78.5 million against sterling maturing 30 March 2012.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)
For the period from 1 July 2011 to 31 December 2011
10 Other receivables
31.12.11 31.12.10 30.06.11
GBP GBP GBP
Sundry debtors 8,279 7,461 21,844
Maturity proceeds receivable - 2,882,398 -
Accrued income 1,268 1,271 -
9,547 2,891,130 21,844
========= ========== =========
11 Other payables
31.12.11 31.12.10 30.06.11
GBP GBP GBP
Accrued expenses 159,591 164,310 228,630
159,591 164,310 228,630
========= ========= =========
12 Loan facility
As at 31 December 2011, under its loan agreement with Allied
Irish Banks, the Company had an amortising term loan of
US$23,093,000 (31 December 2010: US$23,156,000, 30 June
2011:US$20,292,000) and a revolving credit balance of US$2,100,000
(31 December 2010: US$3,900,000, 30 June 2011: US$800,000) at 31
December 2011 making a total loan balance of US$25,193,000
(GBP16,208,366) (31 December 2010: US$27,048,000, 30 June 2011:
US$21,092,000). Under the revolving credit facility a further
US$1,900,000 remained available (31 December 2010: US$ nil, 30 June
2011: US$2,000,000).
The loan agreement with AIB is due to expire on 30 March 2012.
The Company has submitted a request to AIB to extend the
agreement.
It is the Company's intention to repay all loans with proceeds
receivable from the maturity of TLIs but, were it necessary, the
Company could sell TLIs in order to repay these loans. It is noted
that the valuation methodology does not assume the sale of TLIs,
rather that they would be held to maturity. In the event of a sale
in current market conditions, the proceeds are likely to be lower
than the valuation.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)
For the period from 1 July 2011 to 31 December 2011
13 Net assets attributable to shareholders
Capital Reserve
Share Revenue
Premium Realised Unrealised Reserves Total
2011 2011 2011 2011 2011
GBP GBP GBP GBP GBP
Balance at 1 July
2011 39,168,236 14,311,919 (16,096,457) (6,513,232) 30,870,466
Realised gain on
maturities - 676,182 - - 676,182
Movement in unrealised
depreciation on
investments - - 678,304 - 678,304
Movement in unrealised
currency loss on
forward
foreign currency
contracts - - (1,001,275) - (1,001,275)
Movement in unrealised
currency losses - - (479,265) - (479,265)
Revenue loss for
the period - - - (513,921) (513,921)
Balance at 31 December
2011 39,168,236 14,988,101 (16,898,693) (7,027,153) 30,230,491
=========== =========== ============= ============ =============
Capital Reserve
Share Revenue
Premium Realised Unrealised Reserves Total
2010 2010 2010 2010 2010
GBP GBP GBP GBP GBP
Balance at 1 July
2010 39,168,236 11,930,497 (12,643,858) (5,405,505) 33,049,370
Realised gain on
maturities - 1,443,212 - - 1,443,212
Movement in unrealised
depreciation on
investments - - (3,707,948) - (3,707,948)
Movement in unrealised
currency loss on
forward
foreign currency
contracts - - 1,768,508 - 1,768,508
Movement in unrealised
currency losses - - 595,108 - 595,108
Revenue loss for
the period - - - (554,774) (554,774)
Balance at 31 December
2010 39,168,236 13,373,709 (13,988,190) (5,960,279) 32,593,476
============ ============ ============== ============= =============
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)
For the period from 1 July 2011 to 31 December 2011
13 Net assets attributable to shareholders (continued)
Capital Reserve
Share Revenue
Premium Realised Unrealised Reserves Total
2011 2011 2011 2011 2011
GBP GBP GBP GBP GBP
Balance at 1 July
2010 39,168,236 11,930,497 (12,643,858) (5,405,505) 33,049,370
Realised gain on
maturities - 2,381,422 - - 2,381,422
Movement in unrealised
depreciation on
investments - - (7,381,294) - (7,381,294)
Movement in unrealised
currency loss on
forward
foreign currency
contracts - - 3,007,485 - 3,007,485
Movement in unrealised
currency losses - - 921,210 - 921,210
Revenue loss for
the year - - - (1,107,727) (1,107,727)
Balance at 30 June
2011 39,168,236 14,311,919 (16,096,457) (6,513,232) 30,870,466
=========== =========== ============= ============ ============
14 Related party transactions
Fees earned by the Directors of the Company during the period
were GBP36,155 of which GBP8,604 was outstanding at the period end
(December 2010: GBP38,486 of which GBP18,395 was outstanding at the
period end; June 2011 GBP73,757 of which GBP6,441 was outstanding
at the year end). Allowable expenses claimed by the Directors in
the course of their duties amounted to GBP3,241 for the period
ended 31 December 2011. Fees earned by the Investment Manager,
Manager and Administrator are discussed in note 4.
15 Events after the reporting date
As at the date of this report, the sale of 12 policies has been
agreed, for a total sum of US$10.7 million and proceeds of US$5.9
million had been received, with the balance due in the next few
weeks.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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